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Thursday, July 5, 2012

Sixth Circuit Rejects Becker-Influenced Sentence (7/5/12)

In United States v. Ciccolini, 2012 U.S. App. LEXIS 13636 (6th Cir. 2012) (unpublished), here, the defendant was an ordained priest who stole from a charity, a Foundation, he was supposed to serve and, in the process, became wealthy. He structured deposits of his ill-gotten gains into this bank accounts and failed to pay taxes on some of the income. He was charged with one count of structuring under 31 USC. § 5324(a)(3) and one count of tax perjury under 26 USC. § 7206(1). He pled guilty to both counts, but prior to doing so had paid the IRS $292,136 as restitution for the taxes involved. At sentencing, the judge denied the acceptance of responsibility downward adjustment because the defendant lied in the colloquy regarding the source of the structured funds (also taxable income) and applied a 2-level upward adjustment for obstruction, apparently related to the same conduct. Those adjustments with others indicated a guideline sentencing range of 63-78 months. The sentencing judge then, exercising his Booker discretion under 18 USC § 3553(a), sentenced the defendant to 1 day in jail (actually 1 day in jail for each count of conviction, to be served concurrently). But, he imposed restitution of $3,500,000, to be paid to the Foundation from which the defendant stole.

For sentencing guideline and Booker fans, this seems facially an odd result. Certainly moving from an indicated sentencing range off 63-78 months to 1 day seems -- let me be more bold, is -- odd, particularly after the defendant lied in his colloquy. The restitution amount is also odd, at least in the facts of the case. The rub was that the restitution was far beyond what the restitution statute, 18 USC § 3553(a), permits (the statute did not permit restitution for the crimes of conviction). That was the rub. The Sixth Circuit, thus, apparently had no choice but to reverse the sentence. The Court noted that, because the 1 day incarceration sentence was related to the restitution amount, both facets must be reversed for resentencing.

So, how did the sentencing court get to the odd and offsetting sentencing components -- one day incarceration (decidedly too little under normal sentencing concepts) and $3,500,000 (decidedly too high under normal sentencing concepts)?As explained by the sentencing judge, the sentence was primarily influenced by a punishment theory devised and championed by Gary Becker, a Nobel prize winning economist, for economic crimes such as involved in this case. At the risk of gross oversimplification of Professor Becker's theory, is that, for economic crimes, onerous fines are what is needed and will serve to deter more effectively than incarceration. (I apologize for that oversimplification but provide some links below and quotes from one of the links for just a little more nuance.) Seizing on that theory, the sentencing judge explained in his sentencing memorandum:

In crafting a punishment that will most adequately deter similar conduct by other individuals in the future, the Court is influenced by the writings of Nobel Prize winning economist Gary Becker. In his seminal article on crime and punishment, Professor Becker recommends more emphasis on fines — and less on incarceration — for many white-collar or financial offenses. Becker theorizes that in financial crimes the incarceration of the specific offender is less important than providing a disincentive to future offenders through financial penalties. The Court generally agrees with those propositions and finds them persuasive here. With Becker's theory in mind, the Court finds that imposing a financial penalty in the current case, rather than prison time, will adequately deter future financial crime.

So, given the limits on restitution, Becker's theory did not carry the day. For more on Becker's theory see: Mahmoud Bahrani, The economics of crime with Gary Becker (The Chicago Maroon 5/25/12), here. An excerpt from that interview:

GC: As we all know, you ultimately came to the conclusion that criminals are just like any other individuals, facing daily problems like your parking situation. That’s a pretty radical thought: People like to think that criminals are acting with some ulterior motive that can’t be understood. When you presented this idea in Crime and Punishment, how did people react?

GB: A lot of hostility among many people. Some economists found it simpatico, so to speak. A number of economists and certainly many non-economists — sociologists and psychologists — found it really ill in way of thinking about the problem. It’s still controversial, but it became less controversial over time as more and more work was done on crime by economists and others, and as the notion of deterrents — that you can deter people in a variety of ways: by punishment, by education, by giving them better alternatives — became much more acceptable.

GC: The paper comes to a rather interesting solution, that punishments should be limited almost exclusively to fines. That’s not very intuitive.

GB: It’s acceptable to fine as long as people have the money and are not what we call “judgment proof.” So if you commit a murder, maybe no fine would compensate society for the damages done by that murder. A fine would be determined by how much harm you’re doing as a result of your actions. A murder would have an extremely high, maybe even infinite, value on it, and even very wealthy people would not be able to meet that price. If they can meet the price, then you have to deter it in another way or in complementary ways—that’s why we think of imprisonment, probation, things of that type.

Fining has a great advantage. If you’re a criminal and you pay me (as the government) a fine, then I’m getting compensated. On the other hand, say I send you to prison; then you’re giving up something, but I’m also giving up something since I have to have guards and money and so on to take care of you. So that’s a really bad form of punishment. Prison may be inevitable, but you try to use a more effective punishment first if you can. A lot of activity we punish with fines. You drive too fast; you get a fine. A company pays less than minimum wage; they get punished with a fine. But they’re not always useable…and in those situations you have to supplement them with real punishments, which have a real cost to society too. You still want to punish the criminal, you still want to deter the action, but it’s going to cost you something.

Becker's original paper, Gary S. Becker, Crime and Punishment: An Economic Approach (1974), is here. Also, on the related topic of the economics of tax evasion, see the Wikipedia entry here.

Addition 7/5/12 5:50 pm: I just added a discussion of this case to my Federal Tax Crimes Book where I approach the case from a slightly different angle, so I post that discussion below (with apologies for the repetition but I do exclude redundant information in the footnotes):

Although beyond the scope of this discussion of fines in tax cases, I think it worth mentioning that a prominent economist – Gary Becker, a Nobel prize winner in economics – theorizes that, for economic crimes, such as tax crimes, economic punishment – most prominently fines – should play a more prominent role in sentencing than incarceration. Under the Sentencing Guidelines and the statutes authorizing fines (see above), incarceration is the punishment that takes precedence, particularly in the case of major economic crimes where, relative to the losses, the fines authorized are not that great. Professor Becker claimed recently that this “economic” approach to punishment is gaining currency. n746 In one recent case, a sentencing judge attempted to apply Becker’s concept in a tax case. In the case, the Guidelines indicated a sentencing range of 63-78 months, but the sentencing judge sentenced to 1 day (actually 1 day on each of two counts, with the 1 day sentence to be served concurrently, so 1 day of incarceration). The sentencing judge ordered fines of $350,000 on one count of money laundering and $100,000 on the tax count (tax perjury). But that was not enough, the judge felt, under Becker’s theory to punish the crime. So, the sentencing judge ordered $3,500,000 in restitution to the charitable Foundation that the defendant stole money from. The sentencing judge specifically based this unusual tap on the wrist and heavy economic payment on Professor Becker’s theory. The problem is that restitution can be ordered only for loss to victims from counts of conviction, so the sentence was reversed on appeal. On remand, of course, the sentencing judge will not have the massive economic sanction in the guise of restitution to justify a minimal incarceration period, so it is likely that he will go with what he has – punishment via significant incarceration. The takeaway point, however, is that, perhaps in appropriate cases buying into Becker’s economic theory of punishment, a pitch can be made to the sentencing judge to mitigate the incarceration time – particularly where counts could be pled that permit restitution and/or the authorized fines are significant in relation to the loss arising from the conduct being sentenced.

n746 . However, for another prominent scholar’s concerns about quantifying in economic terms important societal values, see Michael J. Sandel, What Money Can’t Buy: The Moral Limits of Markets (Farrar, Straus and Giroux April 24, 2012) [here].

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